Electing S-Corp Taxation for LLCs – Does it Make Sense for Your Business?
December 13th, 2016
Contributor: Philip J. Curtis
Many entrepreneurs operate their businesses as a limited liability company (LLC). The usual method of taxation for an LLC is to be taxed as a disregarded entity if the LLC has only one member with the income being reported on Schedule C of the member’s personal income tax return, or as a partnership for a multi-member LLC with the income being passed through to the members in proportion to their ownership interest and reported on Schedule K-1.
The disadvantage of this form of taxation is that the net income is subject to employment tax at the rate of 15.3%. However, if the LLC elects to be taxed as a Subchapter S corporation by filing IRS forms 8832 and 2553, only a members’ salary would be subject to employment tax and the remaining profits would be considered an owners’ distribution reported on Schedule K-1 and would not be subject to employment tax.
There are various advantages, disadvantages and other factors to consider before deciding whether to make the election. A thorough review is recommended.
If your LLC is a calendar year taxpayer, you will need to act soon if you desire to make this change for 2017.
Please contact our office if you have any questions, would like assistance with the analysis, or if we can assist in any other way. We are here to help.
The law firm of Curtis, Curtis & Brelinski, P.C., founded in 1901, is a team of professionals committed to providing the highest level of legal services and client experiences to individuals, families and businesses in Jackson and surrounding communities.